Configure deferral defaults and items deferred by default

Completed

When Finance posts a transaction that includes a deferrable item, such as an annual software subscription on a sales order, it needs to know which account holds the deferred revenue, which account recognizes it, and how to spread recognition over time. The Deferral defaults page provides the account and template information. The Items deferred by default page identifies the items that trigger the deferral process automatically.

Together, these pages eliminate the need to mark each qualifying transaction line as deferred manually.

Note

Before you configure deferral defaults, create the deferral templates that you plan to assign. Templates define the recognition periods and frequencies. You can create templates at Subscription billing > Revenue and expense deferrals > Setup > Deferral templates.

Understand automatic deferrals

Automatic deferrals are triggered by the item on a transaction line. You can assign specific items, item groups, or item categories to deferral accounts and templates. This approach is useful when deferrable revenue is associated with identifiable products, such as a 12-month support contract item.

The Deferral defaults page includes tabs for the following transaction types:

• Sales order
• Purchasing
• General journal
• Free text invoice
• Invoice journal

Configure deferral defaults for sales orders

The Sales order tab is a common starting point for revenue deferral. The following procedure uses the Defer by item approach for product-based subscription revenue.

1. Go to Subscription billing > Revenue and expense deferrals > Setup > Deferral defaults.
2. Select the Sales order tab.
3. Select the Deferred revenue posting type, and then select Add.
4. In the Item code field, select the scope for the rule:
   • Table - Apply the rule to one item.
   • Group - Apply the rule to all items in an item group.
   • All - Apply the rule to all items on sales orders.
   • Category - Apply the rule to all items in a product category.
5. If you selected Table or Group, select the item or group in the Item relation field. If you selected Category, select the category in the Category relation field.
6. In the Account code field, select whether the rule applies to a specific customer (Table), customer group (Group), or all customers (All).
7. If you selected Table or Group in the Account code field, select the customer or customer group in the Account relation field.
8. In the Main account field, select the balance sheet account that holds the deferred revenue until it's recognized.
9. If the deferral posting method on the Revenue and expense deferral parameters page is Profit and loss, set the Initial revenue account and Revenue offset account fields.
10. If the short-term deferral method on the Revenue and expense deferral parameters page is Rolling periods or Fixed year, set the Short-term deferral account field.
11. Select the Deferred consumption posting type, and then select Add.
12. Add a line for each revenue account that you post to. These accounts often match the accounts on the Posting page in Inventory management and can differ by product or item group.
13. Select Save.

Short-term deferrals use both short-term and long-term deferral accounts. As revenue is recognized, Finance adjusts the accounts so that the short-term account includes the deferred revenue that is due to be recognized within the rolling or fixed year.

Tip

The main account is a balance sheet account that holds revenue that isn't earned. The recognition account is set on the template, and you can override it when you assign the template.

Configure defaults for other transaction types

The Purchasing tab uses the same field structure as the Sales order tab. The Free text invoice, Invoice journal, and General journal tabs don't include item, customer, or vendor codes. For these transaction types, specify the deferral main account, recognition account, and template directly.

1. On the Deferral defaults page, select the Free text invoice, Invoice journal, or General journal tab.
2. Select Add.
3. In the Deferral account field, select the main account that triggers deferral when you use it on a journal line.
4. In the Recognition account field, select the account where revenue is recognized.
5. If applicable, set the Short-term deferral account, Initial revenue account, and Revenue offset account fields.
6. Select a Straight line template or an Event based template.
7. Select Save.

Assign templates

Templates determine the schedule that is used for deferrals. Assign templates on the Deferral defaults page. You can use different templates for each transaction type, item, item group, or main account. Two template types are available:

• Straight line - Spreads the deferral across the periods that are defined for the transaction line. The template can prorate periods based on the number of days in each month or use a 30-day month. It can also prorate partial periods at the beginning and end of the transaction period.
• Event based - Uses specified dates and amounts. For example, a milestone schedule might recognize 10 percent when requirements are completed and 25 percent when design is completed.

To assign a template to an item rule, follow these steps:

1. On the Deferral defaults page, select the Template posting type, and then select Add.
2. Set the Item code and, as applicable, the Item relation or Category relation fields.
3. Set the Account code and, as applicable, the Account relation field.
4. Select a template in the Straight line template field. For event-based recognition, select a template in the Event based template field. A line can use only one template type.
5. Select Save.

Set up items deferred by default

Use the Deferral defaults page to define the accounts and templates to use. Use the Items deferred by default page to define which items are automatically marked for deferral when they appear on a transaction. If an item isn't listed, a user must mark the transaction line as deferred manually.

1. Go to Subscription billing > Revenue and expense deferrals > Setup > Items deferred by default.
2. Select the Sales order tab for sales order deferrals or the Purchasing tab for purchase order deferrals.
3. Select Add.
4. In the Item code field, select the scope:
   • Table - Apply the rule to one item.
   • Group - Apply the rule to an item group.
   • Category - Apply the rule to a product category.
5. If you selected Table or Group, set the Item relation field. If you selected Category, set the Category relation field.
6. Repeat the preceding steps for each item, group, or category that you want to defer by default.
7. Select Save.

Important

Listing an item on the Items deferred by default page isn't sufficient by itself. The item must also have a matching rule on the Deferral defaults page with an assigned main account and template. If the accounts or template are missing, Finance doesn't defer the transaction line when the transaction is posted.

Review proposed deferrals

Configure both pages for a fully automatic deferral. After you configure them, Finance creates a deferral schedule whenever you post a matching item.

To review a proposed deferral from a sales order line, select Deferrals in the line grid.

If you configure the item and all required parameters, the Deferred option is set to Yes, and Finance fills in the template and main accounts automatically. You can also set Deferred to Yes manually for an item that isn't deferred by default. Select Preview to review the proposed schedule.

The preview displays the proposed recognition schedule. Finance doesn't create the deferral schedule until you invoice the order.

For more information, see Revenue and expense deferrals.